The surge in global trade, facilitated by advancements in communication and transportation, has led to a significant rise in disputes arising from international commercial transactions. These transactions involve agreements between parties from different countries, making it complex, time-consuming, and costly to resolve disputes through traditional judicial processes. Consequently, arbitration has become the preferred method for parties to settle their legal conflicts, with the inclusion of arbitration clauses in commercial agreements being the favoured approach. Arbitration is an alternative dispute resolution mechanism in which commercial disputes are resolved by one or more individuals, who make decisions based on the evidence and arguments presented by the involved parties. These decisions are then enforceable by a court of law. The popularity of arbitration within the international business community has increased due to its expeditious and streamlined proceedings, as well as its legal validity and enforceability. Over the years, India has established and interpreted the enforceability of international arbitral awards in a manner that promotes a favourable environment for business and arbitration. This approach aims to attract international investments to the country. This article explores the legal framework in India concerning the enforcement of foreign arbitral awards, emphasizing the fundamental principle of limited judicial intervention. The main legislation governing the enforceability of such awards in India is the Arbitration and Conciliation Act of 1996.
The enforcement of foreign arbitral awards in India is governed by the Arbitration and Conciliation Act, 1996. This Act incorporates the provisions of the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the New York Convention) and the Execution of Foreign Arbitral Awards, 1927 (the Geneva Convention), as India is a signatory to both conventions. To be enforceable in India, a foreign arbitral award must be obtained from an arbitration tribunal in a country that is a signatory to the Geneva and New York Conventions and has been designated as a reciprocating territory by the Indian government. Prior to the Arbitration and Conciliation Act, 1996, the enforcement of arbitration awards in India was governed by the Arbitration Act, 1940 (for domestic awards), the Arbitration (Protocol and Convention) Act, 1937 (for awards based on the Geneva Convention), and the Foreign Awards (Recognition and Enforcement) Act, 1961 (for awards based on the New York Convention). In 1996, India replaced these three statutes with the Arbitration and Conciliation Act, 1996. The Act consists of four parts: Part I deals with the enforcement of awards from arbitrations conducted in India, while Part II covers the enforcement of foreign arbitral awards governed by the Geneva and New York Conventions. Parts III and IV, which pertain to conciliation and supplementary provisions, are not directly relevant to the topic at hand.
Definition: Section 44 of Part II of the Arbitration and Conciliation Act, 1996 defines a foreign award as an arbitral award that arises from disputes between individuals based on legal relationships, whether contractual or not, and is deemed commercial under the current laws of India. This award must be obtained through a written agreement for arbitration and be granted in a country that is a signatory to the Geneva and New York Conventions, as notified by the Indian government.
Enforcing foreign arbitral awards in India involves a two-stage process. The first step is to file an execution petition under Section 48 of the Arbitration and Conciliation Act, 1996, accompanied by the original or authenticated copy of the award and the original or copy of the arbitration agreement. If the award is declared enforceable, the court can order execution through a decree under the Code of Civil Procedure, 1908. It is crucial that the award is issued in a country notified by the Indian government, and the New York and Geneva Conventions apply to that country. The Supreme Court of India's decision in the case of Transoceanic Shipping Agency Pvt. Limited v. Black Sea Shipping and Others, [1998 (2) SCC 281] expanded the list of notified countries, demonstrating the court's willingness to enforce foreign arbitral awards.
Section 48(1), 48(2), and 57 of the Arbitration and Conciliation Act, 1996 specify the conditions under which a foreign award cannot be enforced in India. These conditions include contravention of public policy. Regarding the public policy exception, Indian courts have narrowly interpreted its meaning concerning foreign awards. In the landmark case of Renusagar Power Company Limited v. General Electric Co [1994 Supp (1) SCC 644], the court defined public policy in a narrow sense, stating that enforcement of an award must involve more than just a violation of Indian law. The court clarified that enforcement will be refused on public policy grounds if it is contrary to the fundamental policy of Indian law, against the interests of India, or violates justice or morality.
The 2015 amendment to the Act introduced two explanations to Section 48(2) to regulate the interpretation of public policy by the courts. The first explanation states that a foreign award will conflict with public policy if it was induced by fraud or corruption, contravenes the fundamental policy of law, or violates basic notions of morality and justice. The second explanation clarifies that a contravention of the fundamental policy of Indian law does not involve a review of the merits of the dispute. In the case of Campos Brothers Farm v. Matru Bhumi Supply Chain [(2019) 261 DLT 201], the Supreme Court of India declined to enforce a foreign arbitral award. The court found that the respondents had been denied the opportunity to present their submissions to the sole arbitrator, which violated the principles of natural justice and the right to a fair hearing. Additionally, the court noted the absence of substantive reasoning in the arbitrator's final decision, which further contributed to the refusal of enforcement. In National Agricultural Co-Operative Marketing Federation of India v. Alimenta S.A., [MANU/SC/0382/2020], the courts dealt with the question of the enforceability of foreign arbitration awards. It was established that if an award is inherently illegal and contravenes the fundamental laws of the country, its enforcement would also violate the public policy of India. Therefore, an ex-facie illegal award would not be enforceable in India.
The enforceability of international arbitral awards in India is governed by the Arbitration and Conciliation Act, 1996, incorporating the principles of the New York and Geneva Conventions. India's pro-business and pro-arbitration approach aims to attract international investments by providing a favourable legal framework for the resolution of cross-border disputes. The two-stage enforcement process requires filing an execution petition and meeting certain conditions, including notification by the Indian government of the country where the award was issued. While the Indian courts generally support the enforcement of foreign arbitral awards, they exercise scrutiny to ensure compliance with principles of natural justice and public policy. Recent cases have emphasized the importance of fair hearing, substantive reasoning, and legality in the enforcement of foreign awards. Overall, India's commitment to upholding international arbitration standards and its willingness to enforce foreign awards contribute to creating a conducive environment for international business transactions and investment in the country.